Advertisement

The Principles of Economic Wealth Creation

  • Robert P. Gilles
Chapter

Abstract

The theory that economic wealth is created through a social division of labour has been around for more than 2500 years. This theory has been given little attention since market-centred thinking took hold in economics after the 1870s. This first chapter introduces an axiomatic framework that provides a rationale for this theory and aims to place this perspective back at the centre of economic reasoning and theorising. The social division of labour emerges from the human ability of increasing returns to specialisation (IRSpec) and the principle of gains from trade within a network-institutional trade infrastructure. Some computational examples of simple production situations illustrate how institutional configurations guide the social division of labour in the production of goods and services.

References

  1. Akerlof, G.A., and R.J. Shiller. 2009. Animal Spirits: How Human Psychology Drives the Economy and Why it Matters for Global Capitalism. Princeton, NJ: Princeton University Press.Google Scholar
  2. Aristotle (340 BCE). Ethica Nicomachea. 2009 ed. Oxford: Oxford University Press.Google Scholar
  3. Aristotle (350 BCE). The Politics: A Treatise on Government. 1995 ed. Oxford: Oxford University Press.Google Scholar
  4. Arnsperger, C., and Y. Varoufakis. 2006. What Is Neoclassical Economics? The Three Axioms Responsible for Its Theoretical Oeuvre, Practical Irrelevance and, Thus, Discursive Power. Post-Autistic Economics Review 38: 1–12.Google Scholar
  5. Aumann, R.J. 1964. Markets with a Continuum of Traders. Econometrica 32: 39–50.CrossRefGoogle Scholar
  6. Babbage, C. 1835. On the Economy of Machinery and Manufacturers. 4th enlarged ed. London: Augustus M. Kelley Publishers.Google Scholar
  7. Backhouse, R. 2010. The Puzzle of Modern Economics: Science or Ideology? Cambridge: Cambridge University Press.Google Scholar
  8. Beaudreau, B.C. 2004. World Trade: A Network Approach. New York, NY: iUniverse.Google Scholar
  9. Blitch, C.P. 1983. Allyn Young on Increasing Returns. Journal of Post Keynesian Economics 5: 359–371.CrossRefGoogle Scholar
  10. Bowles, S., and H. Gintis. 2011. A Cooperative Species: Human Reciprocity and Its Evolution. Princeton, NJ: Princeton University Press.Google Scholar
  11. Buchanan, J.M. 2008. Let Us Understand Adam Smith. Journal of the History of Economic Thought 30: 19–28.Google Scholar
  12. Buchanan, J.M., and Y.J. Yoon. 2002. Globalization as Framed by the Two Logics of Trade. Independent Review 6(3): 399–405.Google Scholar
  13. Cervellati, M., P. Fortunato, and U. Sunde. 2008. Hobbes to Rousseau: Inequality, Institutions and Development. Economic Journal 118: 1354–1384.CrossRefGoogle Scholar
  14. Chang, H.J. 2014. Economics: The User’s Guide. Gretna, LA: Pelican.Google Scholar
  15. Christakis, N.A., and J.H. Fowler. 2009. Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives. London: Harper Press.Google Scholar
  16. Diamantaras, D., and R.P. Gilles. 2004. On the Microeconomics of Specialization. Journal of Economic Behavior and Organization 55: 223–236.CrossRefGoogle Scholar
  17. Duménil, G., and D. Lévy. 2011. The Crisis of Neoliberalism. Cambridge, MA: Harvard University Press.Google Scholar
  18. Dunbar, R.I.M. 1992. Neocortex Size as a Constraint on Group Size in Primates. Journal of Human Evolution 22: 469–493.CrossRefGoogle Scholar
  19. Dunbar, R.I.M. 2003. Evolution of the Social Brain. Science 302: 1160–1161.CrossRefGoogle Scholar
  20. Dunbar, R.I.M. 2009. The Social Brain Hypothesis and Its Implications for Social Evolution. Annals of Human Biology 36(5): 562–572.CrossRefGoogle Scholar
  21. Dunbar, R.I.M. 2014. Human Evolution: A Pelican Introduction. Gretna, LA: Pelican.Google Scholar
  22. Edgeworth, F.Y. 1881. Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences. London: C. Kegan Paul & Co.Google Scholar
  23. Foley, D.K. 2006. Adam’s Fallacy: A Guide to Economic Theology. Cambridge, MA: Belknap Press.Google Scholar
  24. Fourie, F.C.V.N. 1991. The Nature of the Market: A Structural Analysis. In Rethinking Economics: Markets, Technology and Economic Evolution, ed. G.M. Hodgson and E. Screpanti, 40–57. Aldershot: Edward Elgar Publishing.Google Scholar
  25. Fuchs, V. 1968. The Service Economy. National Bureau of Economic Research, New York, NY, General Series No. 87.Google Scholar
  26. Geary, R.C. 1950–1951. A Note on “A Constant Utility Index of the Cost of Living”. Review of Economic Studies 18(1): 65–66.CrossRefGoogle Scholar
  27. Geertz, C. 1979. Suq: The Bazaar Economy in Sefrou. In Meaning and Order in Moroccan Society: Three Essays in Cultural Analysis, ed. C. Geertz, H. Geertz, and L. Rosen, 123–313. Cambridge, MA: Cambridge University Press.Google Scholar
  28. Gilles, R.P. 2017a. The Core of an Economy with an Endogenous Social Division of Labour. Working Paper, Management School, Queen’s University Belfast, Belfast, UK.Google Scholar
  29. Gilles, R.P. 2017b. Market Economies with an Endogenous Social Division of Labour. Working paper, Queen’s University Management School, Belfast, UK.Google Scholar
  30. Gilles, R.P. 2018. Economic Wealth Creation and the Social Division of Labour Volume II: Network Economies. London: Palgrave Macmillan.Google Scholar
  31. Gilles, R.P., E.A. Lazarova, and P.H.M. Ruys. 2015. Stability in a Network Economy: The Role of Institutions. Journal of Economic Behavior and Organization 119: 375–399.CrossRefGoogle Scholar
  32. Gilles, R.P., M. Pesce, and D. Diamantaras. 2017. The Provision of Collective Goods through a Social Division of Labour. Working Paper #369, CSEF—Centre for Studies in Economics and Finance, Department of Economics, University of Naples Frederico II, Naples, Italy.Google Scholar
  33. Gimpel, J. 1976. The Medieval Machine: The Industrial Revolution of the Middle Ages. London: Penguin.Google Scholar
  34. Gintis, H. 2017. Individuality and Entanglement: The Moral and Material Bases of Social Life. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
  35. Graeber, D. 2011. Debt: The First 5,000 Years. Brooklyn, NY: Melville House Publishing.Google Scholar
  36. Haegens, K. 2015. De grootste show op aarde: De mythe van de markteconomie. Amsterdam: AmboAnthos.Google Scholar
  37. Hahn, F.H. 1971. Equilibrium with Transaction Costs. Econometrica 39: 417–439.CrossRefGoogle Scholar
  38. Hahn, F.H. 1973. On Transaction Costs, Inessential Sequence Economies and Money. Review of Economic Studies 40: 449–461.CrossRefGoogle Scholar
  39. Hahn, F.H., and R.M. Starr. 1976. Equilibrium with Non-Convex Transaction Costs: Monetary and Non-Monetary Economies. Review of Economic Studies 43: 195–215.CrossRefGoogle Scholar
  40. Harari, Y.N. 2014. Sapiens: A Brief History of Humankind. London: Vintage Books.Google Scholar
  41. Hardin, R. 2006. Trust. Cambridge: Polity Press.Google Scholar
  42. Harvey, D. 2017. Marx, Capital and the Madness of Economic Reason. London: Profile Books.Google Scholar
  43. Hayek, F.A. 1937. Economics and Knowledge. Economica 4: 33–54.CrossRefGoogle Scholar
  44. Hayek, F.A. 1945. The Use of Knowledge in Society. American Economic Review 35: 519–530.Google Scholar
  45. Hayek, F.A. 1960. The Constitution of Liberty. Chicago, IL: University of Chicago Press.Google Scholar
  46. Hidalgo, C. 2015. Why Information Grows: The Evolution of Order, from Atoms to Economies. London: Allen Lane (Penguin).Google Scholar
  47. Hildenbrand, W. 1974. Core and Equilibria of a Large Economy. Princeton, NJ: Princeton University Press.Google Scholar
  48. Horan, R., E. Bulte, and J. Shogren. 2005. How Trade Saved Humanity from Biological Exclusion: An Economic Theory of Neanderthal Extinction. Journal of Economic Behavior and Organization 58(1): 1–29.CrossRefGoogle Scholar
  49. Hume, D. 1740. A Treatise of Human Nature. Oxford Philosophical Texts. Oxford: Oxford University Press. Reprint 2002, ed. David Fate Norton and Mary J. Norton.Google Scholar
  50. Hume, D. 1748. An Enquiry Concerning Human Understanding. Oxford Philosophical Texts. Reprint 1999, ed. Tom L. Beauchamp. Oxford: Oxford University Press.CrossRefGoogle Scholar
  51. Jackson, M.O., T.R. Barraquer, and X. Tan. 2012. Social Capital and Social Quilts: Network Patterns of Favor Exchange. American Economic Review 102(5): 1857–1897.CrossRefGoogle Scholar
  52. Jevons, W.S. 1871. The Theory of Political Economy. 1970 ed. London: Penguin.Google Scholar
  53. Kets, W., G. Iyengar, R. Sethi, and S. Bowles. 2011. Inequality and Network Structure. Games and Economic Behavior 73: 215–226.CrossRefGoogle Scholar
  54. Kirman, A.P., and N.J. Vriend. 2001. Evolving Market Structure: An ACE Model of Price Dispersion and Loyalty. Journal of Economic Dynamics and Control 25: 459–502.CrossRefGoogle Scholar
  55. Klaes, M. 2000. The History of the Concept of Transaction Costs: Neglected Aspects. Journal of the History of Economic Thought 22(2): 191–216.CrossRefGoogle Scholar
  56. Knight, F.H. 1921. Risk, Uncertainty and Profit. Boston, MA: Houghton Mifflin.Google Scholar
  57. Kuhn, S.L., and M.C. Stiner. 2006. What’s a Mother to Do? The Division of Labor among Neandertals and Modern Humans in Eurasia. Current Anthropology 47: 953–980.CrossRefGoogle Scholar
  58. Leijonhufvud, A. 2007. The Individual, the Market and the Division of Labor in Society. Capitalism and Society 2(2): Article 3.Google Scholar
  59. Leontief, W. 1936. Quantitative Input and Output Relations in the Economic Systems of the United States. Review of Economics and Statistics 18(3): 105–125.CrossRefGoogle Scholar
  60. Malthus, T.R. 1798. An Essay on the Principle of Population, as it Affects the Future Improvement of Society. London: J. Johnson.Google Scholar
  61. Mandeville, B. 1714. The Fable of the Bees; Or, Private Vices, Publick Benefits. 1924 ed. London: J. Tonson.Google Scholar
  62. Marshall, A. 1890. Principles of Economics. 8th ed. London: Macmillan Press.Google Scholar
  63. Marx, K. 1867. Capital: A Critique of Political Economy — Volume I: The Process of Production of Capital. 1967 ed. New York, NY: International Publishers.Google Scholar
  64. Marx, K. 1893. Capital: A Critique of Political Economy — Volume II: The Process of Circulation of Capital. 1967 ed. New York, NY: International Publishers.Google Scholar
  65. Marx, K. 1894. Capital: A Critique of Political Economy — Volume III: The Process of Capitalist Production as a Whole. 1967 ed. New York, NY: International Publishers.Google Scholar
  66. Ménard, C. 1995. Markets as Institutions Versus Organizations as Markets? Disentangling Some Fundamental Concepts. Journal of Economic Behavior and Organization 28: 161–182.CrossRefGoogle Scholar
  67. Menger, C. 1871. Grundsätze der Volkswirtschaftslehre. 1976 ed. New York, NY: New York University Press.Google Scholar
  68. Mill, J.S. 1848. Principles of Political Economy. London: John W. Parker.Google Scholar
  69. Mitchell, W.C. 1944. The Role of Money in Economic History. Journal of Economic History 4(Supplement: The Tasks of Economic History): 61–67.CrossRefGoogle Scholar
  70. North, D.C. 1989. Institutions and Economic Growth: A Historical Introduction. World Development 17(9): 1319–1332.CrossRefGoogle Scholar
  71. North, D.C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  72. North, D.C. 1991. Institutions. Journal of Economic Perspectives 5(1): 97–112.CrossRefGoogle Scholar
  73. Pareto, V. 1906. Manual of Political Economy. 1972 reprint ed. London: Macmillan Press.Google Scholar
  74. Plato (380 BCE). Republic. 2007 ed. London: Penguin Classics.Google Scholar
  75. Prendergast, R. 2016. Bernard Mandeville and the Doctrine of Laissez-faire. Erasmus Journal for Philosophy and Economics 9(1): 101–123.CrossRefGoogle Scholar
  76. Ricardo, D. 1817. On the Principles of Political Economy and Taxation. London: John Murray.Google Scholar
  77. Ridley, M. 2010. The Rational Optimist: How Prosperity Evolves. London: Fourth Estate.Google Scholar
  78. Roemer, J.E. 1980. A General Equilibrium Approach to Marxian Economics. Econometrica 48(2): 505–530.CrossRefGoogle Scholar
  79. Roemer, J.E. 1981. Analytical Foundations of Marxian Economic Theory. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  80. Roemer, J.E. 1998. Equality of Opportunity. Cambridge, MA: Harvard University Press.Google Scholar
  81. Rosenbaum, E.F. 2000. What Is a Market? On the Methodology of a Contested Concept. Review of Social Economy 58(4): 455–482.CrossRefGoogle Scholar
  82. Ruys, P.H.M. 2002. A General Equilibrium of Managed Services. In Equilibrium, Markets and Dynamics: Essays in the Honour of Claus Weddepohl, ed. C. Hommes, R. Ramer, and C. Withagen, 117–139. Berlin: Springer.CrossRefGoogle Scholar
  83. Ruys, P.H.M. 2006. The Governance of Services. TILEC Discussion Paper Series, Tilburg University, Netherlands.Google Scholar
  84. Ruys, P.H.M. 2008. A Constructive Theory of Representation. CentER Discussion Paper Series, Tilburg University, Tilburg, The Netherlands.Google Scholar
  85. Ruys, P.H.M. 2009. The Nature of a Social Enterprise. Working Paper, CentER for Economic Research, Tilburg University, Tilburg.Google Scholar
  86. Say, J.B. 1826. Traité d’Économie Politique. Paris: Chez Rapille.Google Scholar
  87. Schumpeter, J. 1926. Theorie der wirtschaftlichen Entwicklung: Eine Untersuchung über Unternehmergewinn, Kapital, Kredit, Zins und den Konjunkturzyklus. 2nd ed. Berlin: Duncker und Humblot.Google Scholar
  88. Schumpeter, J. 1934. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle. Cambridge, MA: Harvard University Press.Google Scholar
  89. Schumpeter, J. 1935. The Analysis of Economic Change. Review of Economic Statistics 17: 2–10.CrossRefGoogle Scholar
  90. Seabright, P. 2010. The Company of Strangers: A Natural History of Economic Life. Revised and enlarged edn. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
  91. Silvermintz, D. 2010. Plato’s Supposed Defense of the Division of Labor: A Reexamination of the Role of Job Specialization in the Republic. History of Political Economy 42(4): 747–772.CrossRefGoogle Scholar
  92. Simon, H.A. 1951. A Formal Theory of the Employment Relationship. Econometrica 19(3): 293–305.CrossRefGoogle Scholar
  93. Simon, H.A. 1991. Organizations and Markets. Journal of Economic Perspectives 5(2): 25–44.CrossRefGoogle Scholar
  94. Smith, A. 1759. The Theory of Moral Sentiments, Cambridge Texts in the History of Philosophy. Reprint 2002, ed. Knud Haakonssen. Cambridge, MA: Cambridge University Press.Google Scholar
  95. Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Reprint 1976. Chicago, IL: University of Chicago Press.Google Scholar
  96. Snehota, I. 1993. Market as Network and the Nature of the Market Process. In Advances in International Marketing, ed. D. Deo, 31–41. Greenwich, CT: JAI Press.Google Scholar
  97. Sowell, T. 1972. Say’s Law: An Historical Analysis. Princeton, NJ: Princeton University Press, Third printing, 1989.Google Scholar
  98. Sraffa, P. 1960. Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory. Cambridge, MA: Cambridge University Press.Google Scholar
  99. Stone, R. 1954. Linear Expenditure Systems and Demand Analysis: An Application to the Pattern of British Demand. Economic Journal 64: 511–527.CrossRefGoogle Scholar
  100. Sun, G. 2012. The Division of Labor in Economics: A History. Routledge Studies in the History of Economics. London: Routledge.Google Scholar
  101. Sun, G., X. Yang, and L. Zhou. 2004. General Equilibria in Large Economies with Endogenous Structure of Division of Labor. Journal of Economic Behavior and Organization 55: 237–256.CrossRefGoogle Scholar
  102. Swedberg, R. 1994. Markets as Social Structures. In The Handbook of Economic Sociology, ed. N.J. Smelser and R. Swedberg, 255–282. Princeton, NJ: Princeton University Press.Google Scholar
  103. Tversky, A., and D. Kahneman. 1974. Judgment Under Uncertainty: Heuristics and Biases. Science 185(4157): 1124–1131.CrossRefGoogle Scholar
  104. Ulph, A.M., and D.T. Ulph. 1975. Transaction Costs in General Equilibrium Theory: A Survey. Economica 42: 355–372.CrossRefGoogle Scholar
  105. Veblen, T.B. 1898. The Instinct of Workmanship and the Irksomeness of Labor. American Journal of Sociology 4(2): 187–201.CrossRefGoogle Scholar
  106. Verhulst, A. 2002. The Carolingian Economy. Cambridge Medieval Textbooks. Cambridge, MA: Cambridge University Press.CrossRefGoogle Scholar
  107. Vignes, A. 1993. Dispersion de prix et marchés décentralisés: le cas du marché au poisson de Marseille. Ph.D. thesis, European University Institute, Florence, Italy.Google Scholar
  108. Vignes, A., and J.-M. Etienne. 2011. Price Formation on the Marseille Fish Market: Evidence from a Network Analysis. Journal of Economic Behavior and Organization 80: 50–67.CrossRefGoogle Scholar
  109. Walras, L. 1926. Eléments d’économie politique pure, ou théorie de la richesse sociale (Elements of Pure Economics, or the Theory of Social Wealth). 4th ed. Paris: Richard D. Irwin Inc. Translation by William Jaffe, 1954.Google Scholar
  110. Whiten, A., and R.W. Byrne. 1988. Tactical Deception in Primates. Behavioral and Brain Sciences 11: 233–273.CrossRefGoogle Scholar
  111. Williamson, O.E. 1979. Transaction-Cost Economics: The Governance of Contractual Relations. Journal of Law and Economics 22: 233–261.CrossRefGoogle Scholar
  112. Williamson, O.E. 2000. The New Institutional Economics: Taking Stock, Looking Ahead. Journal of Economic Literature 38(3): 595–613.CrossRefGoogle Scholar
  113. Xenophon (362 BCE). Œconomicus. 1994 ed. vol. Translated by Sarah B. Pomeroy. Oxford: Clarendon Press.Google Scholar
  114. Xenophon (370 BCE). Cyropædia: The Education of Cyrus. 1914 ed. London: Pantianos Classics.Google Scholar
  115. Yang, X. 1988. A Microeconomic Approach to Modeling the Division of Labor Based on Increasing Returns to Specialization. Ph.D. thesis, Princeton University, Princeton, NJ.Google Scholar
  116. Yang, X. 2001. Economics: New Classical Versus Neoclassical Frameworks. Malden, MA: Blackwell Publishing.Google Scholar
  117. Yang, X. 2003. Economic Development and the Division of Labor. Malden, MA: Blackwell Publishing.CrossRefGoogle Scholar
  118. Yang, X., and Y.-K. Ng. 1993. Specialization and Economic Organization: A New Classical Microeconomic Framework. Amsterdam: North-Holland.Google Scholar
  119. Young, A.A. 1928. Increasing Returns and Economic Progress. Economic Journal 38: 527–542.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Robert P. Gilles
    • 1
  1. 1.Management SchoolQueen’s University BelfastBelfastUK

Personalised recommendations